Better Payroll with a PAYE Intermediary

In today’s market, there’s no shortage of ways to manage your payroll – be it through your accountant, handling it yourself with software, or fully outsourcing the task. But there’s one choice that stands out from the rest for its distinct advantages: PAYE intermediaries. These specialists not only possess deep expertise in tax matters but also ensure that your payroll information is relayed accurately and reliably to the Inland Revenue Department (IRD). Read on as we explore the unique benefits of using a PAYE intermediary and why it could be the ideal payroll solution for your business.

What is a PAYE Intermediary?

In New Zealand, a PAYE (Pay As You Earn) Intermediary is a specialized service that simplifies payroll tax management for employers. Their role includes accurately calculating and deducting taxes from employees’ wages and handling payments and reporting to Inland Revenue.

• What They Do: They calculate how much tax to take out of your employees’ pay and send this information to the New Zealand tax office (IRD). They make sure all the tax details are correct and submitted on time.
• Who They Can Be: A PAYE intermediary can be a specialized payroll company, an accounting firm, or even a software service that’s set up to handle payroll taxes.
• Why Use One: They take the hassle of tax calculations and paperwork off your plate. This is especially helpful if you’re not an expert in tax laws or if you’d rather focus on other parts of your business.

With New Zealand having one of the most complex tax and payroll legislation globally, a PAYE Intermediary brings you that much needed clarity and precision. They are experts at understanding the complexities of the legislation, ensuring compliance with regulations including minimum wage, sick leave, holiday pay, KiwiSaver, and ESCT (Employer Superannuation Contribution Tax).

With and Without a PAYE Intermediary

Managing payroll is a critical aspect of running a business, yet it can be complex and time-consuming, especially in terms of tax compliance. A PAYE (Pay As You Earn) intermediary can significantly streamline this process, but what difference does it really make? To illustrate the impact of using a PAYE intermediary versus handling payroll independently, let’s explore two contrasting scenarios involving New Zealand businesses – one that manages payroll without an intermediary and another that benefits from the services of a PAYE intermediary.

Scenario 1: Business Without a PAYE Intermediary ❌

Business A is a small cafe in New Zealand. The owner, Sarah, handles the payroll herself.

Here’s what she needs to do:

• Calculating Payroll: Every fortnight, Sarah spends hours calculating wages for her 10 employees. She manually figures out each employee’s income tax, KiwiSaver contributions, student loan deductions, and other statutory deductions.

• Staying Updated with Tax Laws: Sarah tries to keep up with the latest tax regulations, but it’s challenging and time-consuming. She’s always worried about missing a new update or rule.

• Submitting Reports: She manually enters payroll details into the IRD’s online system for payday filing. This is done every fortnight and often feels repetitive and burdensome.

• Handling Errors and Queries: Occasionally, Sarah makes mistakes in calculations or reporting. Correcting these with the IRD takes up more of her time and causes stress.

• Time and Effort: Overall, Sarah spends a significant portion of her time on payroll tasks, which distracts her from focusing on her cafe and growing her business.

Scenario 2: Business Using a PAYE Intermediary ✅

Business B is a boutique shop owned by Jack. He uses a PAYE intermediary in the form of a payroll software for his payroll. 

Here’s how Jack’s payroll is handled:

• Automated Payroll Calculations: The PAYE intermediary payroll software  automatically calculates wages, taxes, and deductions for his 8 employees. Jack just inputs the hours worked, and the rest is taken care of.

• Expert Knowledge of Tax Laws: The intermediary stays current with all tax laws and ensures Jack’s payroll is compliant, relieving Jack of the need to track these changes himself.

• Seamless Payday Filing: The intermediary electronically submits all necessary payroll information directly to the IRD after each payroll run. Jack doesn’t need to manually enter any data for payday filing.

• Handling of Errors and IRD Communications: If there are any issues or discrepancies, the PAYE intermediary deals with the IRD directly to resolve them, often without needing Jack’s involvement.

• Focused on His Business: With the payroll in expert hands, Jack spends his time managing his boutique, serving customers, and planning business growth strategies.

So why should you use a PAYE intermediary? Sarah operates Business A without a PAYE intermediary and faces time-consuming payroll tasks, the stress of staying compliant with tax laws, and the potential for errors. On the other hand, Jack gets a lot of help with Business B from his PAYE intermediary and enjoys efficient, accurate payroll processing, compliance assurance, and more time to focus on his core business activities.

Who Should Consider Using a PAYE Intermediary?

Small to medium-sized enterprises (SMEs) often find the most value in using a PAYE Intermediary, especially those without a dedicated payroll department. However, larger organizations can also benefit from the specialized expertise and efficiency gains.

A PAYE Intermediary can be a valuable asset for New Zealand businesses of all sizes looking to simplify their payroll processes and ensure compliance with tax laws. It’s a bit like having a specialised co-pilot for your payroll journey, making sure everything runs smoothly while you focus on steering your business to success.

Effortless Payday Filing with a PAYE Intermediary

Payday filing is a way businesses in New Zealand report their employees’ pay details to the tax office (Inland Revenue). You do it every time you pay your employees – whether that’s weekly, fortnightly, or monthly.

Why Do I Need to Do It?

It’s required by law in New Zealand. Payday filing helps keep tax records up-to-date and accurate. This way, the tax office always has the latest information about what your employees are earning and the taxes being deducted.

What Happens If I Don’t Do It?

If you don’t do payday filing or you do it late, the Inland Revenue might penalize you. This could mean fines for your business. Also, not keeping up with payday filing can lead to errors in tax records, which can create more headaches and extra work later to fix things.

A PAYE intermediary can help simplify the payday filing process for businesses. As payday filing requires employers to report employee earnings and tax details to the Inland Revenue every time they run payroll, it can quickly become a tedious task. A PAYE intermediary, with their expertise in payroll and tax regulations, can take on this responsibility, ensuring accuracy and compliance with legal requirements. Payroll software can be used to automate and streamline these submissions, significantly reducing the administrative burden. This not only helps in avoiding potential penalties for non-compliance or errors but also gives business owners peace of mind, knowing their payroll obligations are managed efficiently and accurately.

Your Crystal Clear PAYE Intermediary

Steering Towards Sustainability

The NZ government says ‘yes’ to salary sacrifice that helps people save for retirement or covers childcare but ‘no’ to anything that just cuts tax without real benefits. They’re keeping a close eye on it, to make sure it’s all about helping Kiwis, not just cutting corners on tax. That’s why salary sacrifice in New Zealand just got more interesting with Workride’s innovative scheme. It’s an environmentally friendly transportation scheme for Kiwi employees and employers alike, looking to make daily travel more eco-friendly and affordable.

Salary Sacrifice in New Zealand

What is Salary Sacrifice?

In New Zealand, salary sacrifice involves an employee agreeing to receive a portion of their pay in a form other than cash, such as higher employer contributions to KiwiSaver, a private superannuation scheme, or daycare/childcare benefits. It is a pre-tax agreement that can result in the employee paying less tax on their income. However, there are limitations and rules around its use to prevent excessive salary sacrifice as a means to avoid tax.

Not to be Confused!

Salary Sacrifice in the context of this blog is unrelated to another payroll concept of KiwiSaver Salary Sacrifice, which is also called KiwiSaver Total Remuneration. This option can also be set up in Crystal Payroll but is separate to this article, and tends to benefit the employer more than the employee.

NZ’s Salary Sacrifice Strategy

The history of salary sacrifice in New Zealand has been closely tied to tax legislation and the desire to ensure fair taxation across different income levels. Concerns about the misuse of salary sacrifice for tax purposes have been addressed by the government. In 2006, Finance Minister Michael Cullen and Revenue Minister Peter Dunne highlighted the growing misuse of salary sacrifice arrangements, particularly concerning superannuation funds, which could result in significant tax disparities. 

The ministers addressed this with the following statements:

“In many cases, high-income employees ‘sacrifice’ their salary merely to reduce their income tax. They do this by arranging a dramatic reduction in their salary in return for a proportionate increase in employer superannuation contributions, which are taxed at a rate lower than their salary,” 

That is a misuse of the tax rules on employer superannuation contributions that results in great unfairness to other taxpayers on similar incomes. In the extreme, those who take advantage of salary sacrifice may well pay thousands of dollars less in tax than others on the same income. “

To address these issues, the government considered changes to the tax rules to counter extreme salary sacrifice practices, seeking to strike a balance between encouraging retirement savings and maintaining equitable taxation.

New Zealand’s salary sacrifice strategy is cautious but deliberate. By allowing salary sacrifices that align with social welfare and economic stability, the government aims to support its citizens without compromising the tax base. This selective approach ensures that salary sacrifice doesn’t become a vehicle for tax evasion but remains a tool for financial well-being. An effective salary sacrifice scheme in New Zealand is one that’s beneficial, compliant, and does not exploit loopholes – a reflection of the government’s commitment to equitable tax practices, prevention of tax base erosion and positive societal benefits.

Payroll for Workride’s New Scheme

Using WorkRide’s new Ride-to-Work benefit scheme means there might be some tweaking required to your payroll to handle salary deductions before taxes. It’s essential for employers to have a payroll system that’s up to the task—accurately handling these deductions and keeping everything compliant with tax laws.

Simple Salary Sacrifice with Crystal Payroll

Crystal Payroll offers a solution that integrates these new payroll needs smoothly. With features  to manage pre-tax benefit deductions, Crystal Payroll takes the complexity out of the equation, ensuring employers can offer WorkRide’s benefits hassle-free. It’s the smart way to keep your payroll compliant and your employees happy with their new wheels.

Here’s how we’ve tailored our system to facilitate the Ride-to-Work scheme:

New Pre-Tax Deduction Code: We’ve created a specific pre-tax deduction code in our system for the Workride scheme. This allows employers to set up the salary sacrifice efficiently, ensuring the deduction is made before tax and in compliance with New Zealand tax laws.

Automated Deductions: Once set up, our system automatically calculates the pre-tax deductions each pay cycle. This hassle-free automation ensures that the correct amounts are deducted, PAYE is accurately adjusted, and employees’ take-home pay reflects the tax benefits of the scheme.

Reporting and Compliance: Our system generates detailed reports that track the salary sacrifice deductions for employers and employees, giving employers transparency and tax compliance. Employers can readily access these reports for their records and tax filing needs.

Ease of Setup: Employers can quickly establish the Workride scheme for their employees through our intuitive interface. The setup process is designed to be straightforward, to ensure that the salary sacrifice is implemented correctly from the start.

Support and Guidance: Crystal Payroll provides exceptional support to ensure that employers understand the setup and management of the Workride scheme within our system. Our team is equipped to handle inquiries and provide detailed guidance. You can call us at (09) 480 0123 or contact us here.

Payroll Setup for Workride Benefits: A Step-by-Step Guide

Public Holiday Pay: Think You’re Doing It Right? Think Again.

Public holidays aren’t always just days of relaxing; for some, it means a headache of having to change up how they process their usual payroll. Employees working on these days have rights to certain benefits, and for businesses, ensuring accurate public holiday pay is both a legal and ethical obligation.

While many assume that public holiday pay is a straight-forward process, the reality is that there’s a lot more to it than meets the eye. The multitude of regulations and subtle details can mean it’s all too easy for businesses to overlook key details when processing their payroll. If you’re confident that your payroll is 100% compliant, the Wendco case might make you reconsider. 

Wendco, the franchisee of the American fast-food chain Wendy’s in New Zealand, offers a lesson in the complexities and potential pitfalls of public holiday pay. This case underscores the importance of understanding and correctly implementing public holiday pay regulations. It’s a call to action for all businesses to review their practices, ensuring they’re not just ticking boxes, but genuinely upholding the rights of their employees. Keep reading to discover why getting public holiday pay right is more crucial than you might have thought.

The Wendco Case: Why you should be cautious with your public holiday pay

In 2015, Wendco (NZ) Limited, a franchisee behind the popular American burger chain Wendy’s Hamburgers with 23 outlets in New Zealand, faced scrutiny following an “Improvement Notice” issued by Labour Inspector Kim Baldwin. The investigation was triggered by employee complaints, suggesting they weren’t receiving their due alternative holidays for working on public holidays. Baldwin looked into Wendco’s employment practices, particularly at their Hornby restaurant, and combined her findings with an audit from another Labour Inspector at Wendco’s Paraparaumu location. The central issue revolved around whether Wendco’s method of determining “usual working days” during public holidays was in line with the Holidays Act 2003.

Wendco’s Missteps: Where They Went Wrong

The company failed to pay some of its employees for working on public holidays and did not provide others with their entitled alternative holiday or “day in lieu.” Their method, dubbed the “three-week rule”, was a straightforward approach: if an employee worked on the same day of the week for three consecutive weeks, then that day was deemed a regular working day for public holiday purposes. While this might sound like a practical solution, it was far from compliant. Such an approach, while convenient, might not always align with the legal requirements of the Holidays Act 2003. Tania Donaldson, the Labour Inspectorate’s Payroll Lead, emphasized that determining if a day is an “otherwise working day” requires a practical, case-by-case approach. Factors like employment agreements, usual work patterns, rosters, and other relevant considerations play a pivotal role.

Upon further investigation, the Employment Relations Authority (ERA) recently found that Wendco failed to pay some of its staff for working on public holidays. This breach was particularly evident around the “Mondayisation” of public holidays in late December 2020 and early January 2021. 

This case underscores the importance of understanding and correctly implementing the provisions of the Holidays Act 2003. As Tania Donaldson, Payroll Lead, aptly pointed out, “Employers who configure their payroll system in a way that is convenient to themselves without proper regard to their obligations run a high risk of being non-compliant.”

Wendco’s Consequences: Paying the Price for Non-Compliance

Upon realization and subsequent investigation into the breaches, Wendco had to undertake several corrective measures:

• Review of Public Holidays Worked: Wendco was instructed to conduct a thorough review of all public holidays worked by past and current employees since July 2012. This was to determine if the public holiday was an “otherwise working day” for the employee.
• Compensation for Affected Employees: For employees who had worked on a public holiday that was determined to be an “otherwise working day”, Wendco had to credit them with an alternative holiday. For former employees who had not taken their alternative holiday before their employment ended, Wendco was required to make a monetary payment for the alternative day.

Estimates suggest that Wendco could be looking at a cost of around 16,500 days or $1.6 million worth of leave – a high price Wendco might pay for its misunderstandings of the Holidays Act. It reiterates the importance of having thorough understanding of the Act and the necessity of having accurate payroll processes in place to avoid such costly financial setbacks.

The Proper Process: What Wendco Should Have Done

To ensure compliance with the Holidays Act 2003, businesses, including Wendco, should take the following steps:

• Determine “Otherwise Working Days” Individually:
  It’s not enough to apply blanket rules when it comes to public holiday entitlements. Each employee’s situation is unique, and businesses should assess this on an individual basis. For instance:

• • Sarah, who works a regular Monday to Friday job, would consider a public holiday falling on a Monday as an “otherwise working day” since she typically works on Mondays.

• • John works in a restaurant with a rotating roster. He doesn’t have fixed days, but he’s been scheduled to work every Saturday for the last two months. A public holiday falls on a Saturday. Given his recent work pattern, that Saturday would likely be considered an “otherwise working day” for John.

• • Determining an “otherwise working day” requires a practical approach, considering factors like employment agreements, usual work patterns, rosters, and other relevant circumstances. It isn’t always enough to only check if they’ve worked three out of four most recent week days.

• Understand and Implement Mondayisation:
  The Holidays Act 2003 introduced the concept of “Mondayisation”. If a public holiday falls on a weekend, and that day would not otherwise be a working day for the employee, the holiday is transferred to the following Monday (or in some cases, Tuesday). For businesses, this means ensuring that employees receive their rightful entitlements even if the public holiday is “Mondayised”.

• Configure the Payroll System with Precision:
  A compliant payroll system is one that’s set up to align seamlessly with the legal obligations of the Holidays Act 2003. This goes beyond just the basic calculations. It means avoiding shortcuts or configurations that, while convenient, might lead to non-compliance. The system should be robust enough to handle the intricacies of public holiday pay, especially for employees with irregular work patterns.

• Regularly Review and Update Processes:
  Compliance isn’t a one-time task. As legislation evolves and company operations change, businesses should be proactive in reviewing and updating their processes. This ensures that they remain compliant and that employees receive their rightful entitlements.